British Columbia’s new climate action plan is built on increasing demand for electricity by about 8 per cent in the next 12 years – the equivalent of adding a second City of Vancouver to the grid. The plan to reduce greenhouse gas emissions is designed to be all carrot and no stick – promising an array of tax breaks and rebates to encourage individuals and industry alike to switch from fossil fuels to clean electricity for their power needs.
What is not clear in the plan released last week is who is going to pay for all the carrots.
The incentives include rebates for retrofitting homes and for buying zero-emission vehicles. There will be tax credits for low-income families and for industries that reduce greenhouse gas (GHG) emissions. Infrastructure – from transmission lines for big industry, to charging stations for electric vehicles – will expand to make it all work.
During the CleanBC announcement, Premier John Horgan introduced his Finance Minster as “my friend Carole James, who has all the money that is going to fully fund this program going forward.” Ms. James’s next budget is Feb. 19, and thanks to the Premier’s remarks, the expectation is that it will launch this ambitious plan to electrify the economy in some substantive way.
The province’s carbon tax will be part of the solution, Mr. Horgan said. “We’re going to take those incremental revenues and drive them into reducing emissions, more transit, more electrification of our highways.”
The challenge, however, will be BC Hydro, the backbone of the province’s electricity system. Mr. Horgan’s government has promised to keep rates down, and is now hoping Ottawa will help pay for the changes needed to deliver on its role in B.C.'s low-carbon future.
The province gets more than two-thirds of its energy from fossil fuels, in part because it is cheaper than electric power. Raising the carbon tax, from $35 a tonne of GHG emissions to $50 a tonne in 2021, will change that equation – unless Hydro rates also rise to cover the cost of delivering new demand.
Richard McCandless, a retired B.C. government bureaucrat and an expert on provincial utilities, predicts Hydro’s ratepayers will absorb the cost, unless government steps in with a bailout.
“Who is going to pay for it? It’s the taxpayers or the ratepayers,” he said in an interview. “Rates are going to have to go up unless there is a subsidy from the taxpayer."
The NDP government wanted to freeze Hydro rates last year as part of its commitment to making life more affordable for British Columbians. Instead, rates increased by 3 per cent. But to cover the actual cost of power, the rates should have gone up more. Instead, Hydro expanded its deferral accounts – an accounting manoeuvre that has allowed the corporation to manipulate rates and return dividends to government.
Using the deferral accounts to avoid big rate hikes only piled on to Hydro’s debt problem – $22-billion at last count – that has already been flagged as a concern by the bond rating agencies.
B.C.'s Auditor-General, Carol Bellringer, would not sign off of the government’s financial books last spring without a qualification, because of her concern about the billions of dollars in debt that have been deferred without independent approval by the independent regulator, the B.C. Utilities Commission (BCUC).
Greg D’Avignon, president and CEO of the Business Council of B.C., is a key supporter of CleanBC, but he still has a lot of questions of how this will impact Hydro rates. “The briefing I got on the plan, a lot of the detail isn’t there," he said. He anticipates Hydro will have to grow, and his members won’t be happy if that drives up their electricity costs. “I don’t know where the capital comes from. Hydro is already heavily indebted.”
The government is conducting a review – to be released early in the new year – looking at Hydro’s costs, including the use of deferral accounts. Until then, Hydro won’t say what kind of premiums it will be seeking when it files its next rate application to the BCUC in February.
And it will take a second government review, starting in 2019, to determine what Hydro’s role in the CleanBC plan will look like. This is the keystone in the climate plan, and the answers are still a long way off.